We appreciate the Commission's continuing efforts to maintain the integrity of the securities markets and the investment advisory industry. The scandals of the past year have impacted not only investment advisers, but our clients and the trust they give us.

We would suggest that rather than require an audit for any firm that has the ability to deduct advisory fees, the surprise audit be limited to only those firms which actually hold securities in trust for our clients.

We would like to comment on the proposal to require an audit of accounts in which the advisor is able to deduct it management fees. The problems faced in the past was not one of payment of fees, it was the fictitious holdings reported to clients by the advisor's affiliate and the wholesale diversion of investment funds.

Where an unaffiliated custodian delivers statements directly to the clients, the addition of an audit adds nothing to the safety of the client's account. It does add to the cost of obtaining competent investment advice with the effect that fee increases will limit such services to clients with greater amounts to invest and driving clients with smaller, but no less important investment funds to seek advice from salesmen who are motivated by commissions instead of account performance.

There is already a rule that requires surprise audits for firms that have access to customers funds and securities when statements are not provided to clients from independent custodians. That rule has worked well for years. But, no rule will be able to prevent a custodian who is willing to produce counterfeit books and records to avoid registration as alleged in a recent SEC release. And a surprise audit will not change that either. Only a thorough examination program by federal and state agencies followed by swift enforcement actions where necessary will limit the damage from such people.